UNCLAS SECTION 01 OF 03 CHIANG MAI 000100

SIPDIS

E.O. 12958: N/A
TAGS: EAGR ECON PGOV PTER TH
SUBJECT: RUBBER GROWS INTO NEW CASH CROP IN THAILAND'S NORTH

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Summary and Comment

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1. As southern China's appetite for raw materials continues to
grow, northern Thailand's agricultural sector is adapting by
expanding rubber production, which is a traditional sector of
southern Thailand. After a significant effort to expand the
area of rubber-producing land in the north under former Prime
Minister Thaksin Shinawatra, the RTG continues to support
farmers that wish to grow this new northern cash crop through
subsidies and technical assistance. Both small and large
farmers are seeing the financial benefits of changing their
northern rice paddies to rubber plantations, and some southern
Thai farmers are even relocating to the north where religious
violence is not a looming threat.




2. Comment: It is noteworthy that despite the RTG's habit of
providing price guarantees and support to more traditional crops
(such as rice and corn), it is, above all, market forces that
are pushing farmers toward rubber production. Although
government support to expand rubber production was significant
during the Thaksin era, present levels of support focus on
sustainability of the sector rather than its expansion, with
much of the funds being used coming from taxes on rubber
exporters. If this policy process -- where more profitable
parts of the rubber sector (exporters) support the less
profitable (farmers) -- proves successful, it could serve as a
new, more market-based model for government support of
Thailand's agricultural sector. End Summary and Comment.



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Background: Land of a Million Rubber Fields

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3. Known historically as Lanna (meaning "Land of a Million Rice
Fields"), northern Thailand is gradually adopting rubber as a
new major cash crop. Since the era of former Prime Minister
Thaksin Shinawatra, the RTG has had a policy to support the
expansion of rubber production outside of its traditional base
in Thailand's south, a policy initiative fueled by southern

China's growing demand for rubber. Phayao province, located on
the northern Thai-Lao border, became the birthplace of former PM
Thaksin's "One Million Rai" policy, which sought to cultivate
one million rais of land (approximately 400,000 acres) as rubber
plantations.




4. Traditionally, northern Thai laborers have served as
temporary workers harvesting liquid rubber at southern Thai
plantations. By the early 1990s, many of these farmers,
particularly in Phayao province, who saw the economic benefit of
producing this raw material, began to carry young rubber trees
from the south to the north to grow on their own land. As this
trend continued, local government officials observed how rubber
was expanding incomes in their province; and those officials
passed the message on to Phayao's Member of Parliament (MP).
Finally the MP told former PM Thaksin about this success story,
and the One Million Rai program became a national policy.




5. While Phayao is considered the birthplace of rubber
production in Thailand's north, farmers from across the northern
region are gradually turning their rice paddy fields into rubber
plantations. In Chiang Rai province alone, about 40,000 acres
of land now grow rubber trees, with an estimated 1,000 to 4,000
new acres cultivated each year, according to the Chiang Rai
Rubber Planting Aid Fund. Presently, another 40,000 acres are
estimated to be rubber plantation land in Phayao province.
Across the northern region, an estimated 120,000 acres of land
are growing rubber, according to the Phayao Rubber Planting Aid
Fund. The same office estimates the northern Thai rubber
plantation's productivity to be about 1,700 lbs/acre per year,
meaning annual regional yield of about 100,000 tons.




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Northern Provinces Promote Rubber Production

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6. While market forces, specifically growing demand for rubber
resources in nearby southern China's Yunnan province, seem to be
the main driving force behind this new cash crop, government
support has helped to sweeten the deal for northern Thai
farmers. Currently, over 90 percent of northern Thailand's
rubber plantations receive some form of government support.
Government support is issued through provincial level Rubber
Planting Aid Fund offices, which are under the RTG's Ministry of
Agriculture and which together function as a nation-wide
state-owned enterprise. Support from the Fund comes in two
forms: direct subsidies and harvest training.




7. RTG subsidization for rubber production has been either to
promote new land to grow rubber or to support land already under
rubber cultivation. Government support that expands the area of
land under rubber cultivation was first administered under the
Thaksin-era One Million Rai program, which ended two years ago.
Between 2003 and 2007, across Thailand, the RTG freely offered
to farmers 225 young rubber trees per acre of land under new
cultivation via provincial Rubber Fund offices. In Chiang Rai
province, for example, the One Million Rai program added about
3,000 acres per year of rubber plantation during its
implementation, a contrast to the less than 600 acres per year
added over the previous decade.




8. Since 2007, the Ministry of Agriculture has shifted away from
promoting the expansion of land growing rubber trees (a trend
continues anyway due to market forces) to supporting land
already under rubber production. One way is grants from the
provincial Rubber Replanting Aid Funds to subsidize the
replacement of old rubber trees with young ones. The fund will
issue "small" farmers (those who only farm three to five acres
of land) a payment of $820 per acre to replace old trees.
(Note: The provincial rubber replanting funds are made up of
rubber export tariffs collected nation-wide.) Large rubber
plantations are not eligible for this replanting support.




9. Another Rubber Replanting Aid Fund initiative to support
rubber planters is harvest training. The fund will finance
regular courses where farmers learn how to harvest and prepare
raw liquid rubber from trees. Econ staff observed one such
training course at the Phayao Rubber Replanting Aid Fund office,
which hosted 40 students, all of whom own or work on small
rubber farms. According to the course trainers, one person
should be able to tap 400 to 500 trees per day; and the course
helps farmers and their working family members to reach this
productivity level. With each farm containing about 800 to
1,000 trees, maximizing harvesting productivity means that the
farm owners do not need to hire outside labor, keeping costs low.



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Big Farm, Little Farm

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10. Although government support for northern Thai rubber
production is limited to the small farms, high rubber demand
from southern China is attracting big companies to invest in
northern rubber production as well. In Chiang Rai province,
three major companies have invested in rubber plantations, two
of which are major Thai beer manufacturers. The Singha Company
developed a 1,000 acre rubber plantation in Chiang Rai last
year. The Terrago Company, a subsidiary of the Chang Beer
Company, started an 800 acre plantation last year. And, the
Thai Rubber Latex Company has invested in over 2,500 acres of
land over 2007 and 2008.




11. Similarly, it is market forces - rather than government
support - that is attracting small farmers to the rubber sector
as well. Though small farmers certainly welcome the free

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training and subsidized tree replacement, these are not their
main motivations for switching to rubber growing. One newly
converted Phayao rubber farmer said that he used to grow corn,
but switched because he noticed that other farmers were growing
rubber and were earning more revenue for less work. He noted
that he cannot use all of his 2.5 acres for rubber; he has to
grow some rice to keep steady income while he waits seven years
for the trees to mature. The son of another Phayao rubber
farmer said that he is helping his father grow and harvest
rubber on their 3 acre farm. He said that because rubber trees
do not require the regular attention of other crops such as rice
and corn, he has time to also run a small internet cafe in the
nearest town. So, for this farmer, not only does the crop have
a higher market value, but it also provides more time for other
income-generating activities.



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Southern Farmers in Northern Farms

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12. In addition to northern farmers switching from traditional
crops to rubber, southern Thai farmers are moving their rubber
plantations from the south to the north because they are growing
tired of the threat of violence in their home provinces. One
Phayao village leader told us that his province has "rubber
fever" because so many southern Thais have relocated there to
start rubber plantations. This village leader said that about
30 to 40 southern Thai families have moved to his district of
Phayao in recent years to start rubber plantations. He said
that local farmers will sell their land for $800 to $1,400 per
acre to southerners who buy from several small northern farmers
to create large rubber plantations. He said that one recent
arrival from the south already owns 800 acres of agricultural
land in his district and that about 4,000 acres of the district
are growing rubber trees. He said, "This region is turning into
a rubber economy.
ANDERSON